Readings in Money and Banking Part 54

A. All branches are managed by a manager, a.s.sisted by a local board of directors, selected from among the best qualified commercial, industrial, and agricultural representatives in the region.

Q. Do the branches have business relations with the merchants, farmers, and all cla.s.ses of people of the locality?

A. Yes, they are open to everybody.

Q. You have, I suppose, in the branches regular clients who have an account with you?

A. Yes, and a considerable number of them.

Q. Do your branches do the same kind of business as the branches of the Credit Lyonnais?

A. The Bank of France and its numerous branches do all banking business consistent with the laws properly regulating a bank of issue.

Q. A bill drawn in New York on France, on a bank, for instance, the Credit Lyonnais, at Paris, and accepted by it, would it be admissible for discount?

A. Yes, if it bore, besides the signature of the French establishment accepting it, at least one other French signature; that of the person presenting it, for instance, having a current account at the Bank of France.

Q. A part of your portfolio comes from rediscounting for banks?

A. Certainly, and it is an important part.

Q. Could you give us an estimate of the proportion of bills which are discounted for banks and those discounted for other customers?

A. I should estimate that about 70 per cent. of the paper now held bears the signature of some bank as one of the indorsers; but it is manifest to us that the number of merchants and manufacturers who appreciate the facilities given by the bank for direct discounting and who profit by it increases perceptibly every day.

Q. Does the Bank of France make the same charge for the discount of bills and for loans upon collateral?

A. The bank usually charges somewhat more for loans upon collateral than for the discount of bills. The rates at present are 3 per cent. and 4 per cent., respectively.

Q. Could we obtain an estimate of the percentage of the deposits of the other banks at the Bank of France in comparison with the whole of such deposits?

A. In the credit establishments which you will visit you will be able to establish the fact that the liquid cash is, in comparison with their turnover, relatively very small. In France we consider that the strength of a bank consists more in the composition of its portfolio, _i. e._, in the value of its commercial bills, rather than in the importance of its cash reserve.

Q. Is the amount of all taxes paid by the bank to the State included in your report?

A. Yes. The public charges of the bank in 1907 were more than 11,000,000 francs, whereas the profits distributed were 31,000,000 francs.

Q. Have you a system of transfers similar to that used by the Reichsbank?

A. Yes, this system, in France, dates as far back as a century or more.

Q. What is your method of transfer?

A. Transfers from place to place are made by simple notification to branches.

Q. Are the other banks accustomed to use the Bank of France in order to transfer their funds?

A. The greater part of the banks use no other method, even to increase the cash in one of their branches in a remote part of France.

Q. Is the Bank of France subject to examination by the Government?

A. There is no regular system of examination, but the Minister of Finance has the right to ask for information whenever he chooses.

Q. Is the Bank of France regarded as a bank for banks or as a bank for the people?

A. The Bank of France remained for a long time, indeed, the bank for banks, but since it has covered so much territory with its numerous branches; since the minimum amount of all its operations has been lowered; since it has opened deposit accounts to all, it is already and it tends to become more and more--as you ask--the bank of all the French public.

Q. Is there any contention in banking or economic circles that it is necessary to restore or extend the right of issue to banks, other than the Bank of France, to enable them to increase their own profits or to afford adequate facilities to borrowers or to meet legitimate business demands?

A. The unity of issue was achieved in France in 1848, and at no time since then has there been any question, in responsible circles, of a possible return to plurality of issue. The same tendency is leading, little by little, to an absolute monopoly in England, Germany, and even in Italy. I think that it would also be interesting for you to examine the recent example of Switzerland, which had its note-issue system founded, as in America, on the plurality of banks and which has now subst.i.tuted for this system one single privileged bank. This transformation has received popular approval by referendum.

Q. Does the export of gold reduce the volume of notes?

A. Not necessarily. It may happen that among our a.s.sets a certain fraction of the gold is replaced by an equal amount of bills in our portfolio, and that without changing the total of notes in circulation.

Q. There is nothing in the law requiring your notes to be covered by a certain proportion of gold?

A. No regulation of this kind exists in our legislation.

Q. Do you rely upon raising the rates of discount to stimulate the importation and to prevent the exportation of gold?

A. It is a principle consecrated by experience that the supreme means of defence for an issue bank, to protect its metallic reserve, is to raise the rate of discount, and we never lose sight of this principle.

However, the extent of our reserves allows us to contemplate without emotion important variations of our metallic stock, and we only exceptionally have recourse to a measure which is always painful for commerce and industry. The stability and the moderation of the rate of discount are considered as precious advantages, which the French market owes to the organisation and traditional conduct of the Bank of France.

Q. Would you like to express an opinion as to why the Bank of France is able to hold its gold with a bank rate of 4 per cent. when the rates elsewhere are higher?

A. The causes of this phenomenon are multiple. Theory teaches us that capital goes where it can obtain the highest remuneration, but in considering this remuneration account must be taken of risks; these are numerous and of different kinds; I mean, of course, commercial risks; risk of losing on exchange when the capital is brought back, etc. This at once explains why it is possible in France to maintain a rate of discount lower than elsewhere. French capitalists might fear, perhaps, that the higher interest obtainable outside might be offset or more than offset by the risks incurred. Account must be taken, secondly, of the situation always held by France as a creditor nation, and which by the constant income of capital which it a.s.sures to us certainly contributes to counter-balance the current of exportation which might result from the lowering of the rate of discount.

Q. Does the Bank of France sometimes take steps to maintain the bank rate by the purchase of bills in the market or otherwise?

A. No, never.

Q. The tradition and the reputation of the Bank of France make it important that it should hold a larger reserve than any other bank in the world?

A. It is true that France keeps locked up in its bank a proportionately larger amount of specie than any other country, but this policy is not without important compensations. Suppose the French public, changing its mind, should reduce by one-half its monetary reserve of which the bank is the guardian. It would gain thereafter the interest on perhaps two milliards of francs released and which would have become productive--that is to say, a saving of from 80 to 100 millions of francs per year at the maximum--but if one reflects that it would lose the advantage of the reduced rates of discount which the extent and character of our reserves enable us to maintain and from which all French production profits; that it would lose, in addition, the sentiment of absolute security, of complete financial independence, which every crisis has strengthened, one would be less tempted to conclude--with certain critics--that the policy of maintaining heavy reserves, the natural expression of the country's instincts, is an unwise policy from an economic and practical standpoint.

Q. You have, I believe, no requirement of law by which the Bank of France is obliged to purchase gold at a certain fixed price?

A. The bank buys gold according to the tariff of the Mint, but it is not obliged to do so. Private individuals, instead of having their money coined for themselves, find it more advantageous to sell their ingots to the bank, which has them coined when needed.

THE CReDIT LYONNAIS

INTERVIEWS WITH BARON BRINCARD, ADMINISTRATEUR DeLeGUe, AND OTHER OFFICIALS OF THE CReDIT LYONNAIS[178]

Q. What is the date of the organisation of the Credit Lyonnais?

A. July 6, 1863.